Unit 7 Flashcards
About contracts
A contract is an agreement between two or more parties who, in a “meeting of the minds,” have pledged to perform or refrain from performing some act.
A valid contract is one that is legally enforceable by virtue of meeting certain requirements of contract law. If a contract does not meet the requirements, it is not valid and the parties to it cannot resort to a court of law to enforce its provisions. In contract law, a contract is valid only if it meets all of the following criteria.
Competent parties
There must be at least two mentally competent parties of legal age with legitimate authority to contract. Legal age of competency in Tennessee is eighteen.
Mutual consent
There must be a meeting of minds, a mutual agreement to terms through the process of offer and acceptance.
Valuable consideration
There must be a two-way exchange of valuable consideration as compensation for performance by the other party.
Legal purpose
A contract that proposes an illegal act is void.
Voluntary, good faith act
The parties must create the contract in good faith as a free and voluntary act. Fraud or misrepresentation makes a contract voidable.
Contracts do not have to be in writing to be valid and enforceable.
Requirements to put contracts in writing–Statute of Frauds
Contracts need not be in writing to be valid. However, Tennessee law requires certain real estate contracts to be written to be enforceable. This requirement in general comes from the legal doctrine known as the Statute of Frauds, which appears in various places in the code.
For instance, this “statute” states that a contract must be in writing to be enforceable if it involves:
the sale of goods for the price of five hundred dollars ($500) or more
the sale of real estate or a real estate lease for a term longer than one year
Also, Commission rules require that exclusive agency listing agreements and exclusive right to sell listing agreements be bilateral and in writing, as, without a written contract, there is no agency relationship, and a licensee has no claim on a commission.
Contracts that must be in writing: exclusive right-to-sell exclusive agency exclusive right to represent buyer lease for more than a year purchase contract employment contract
Listing agreements
An exclusive listing agreement, the document that puts an agent or broker in business, is a legally enforceable real estate agency agreement between a real estate broker and a client, authorizing a real estate licensee to act as a party’s exclusive agent for the purchase, sale, or lease of real estate. The unique characteristic of a listing agreement is that it is governed both by agency law and by contract law.
Like other contracts, the listing agreement must meet the requirements for a valid contract to be enforceable.
In addition, a valid listing agreement must:
be in writing
have a termination date
specify a selling price
A licensee may be punished for using or promoting the use of any real estate listing agreement form, sales contract form, or offer to purchase form, which fails to specify a definite termination date.
A listing agreement may use a street address rather than a legal description if it is precise enough to identify what is being purchased. It is advisable, however, to use a legal description in a deed or deed of trust.
In practice, a broker should get every listing in writing and make sure it clearly states what is being offered for sale, at what price, what the broker is authorized to do and how the broker will be paid.
Who may prepare contracts
Contract preparation is generally in the purview of attorneys at law. Real estate licensees must be careful to avoid the unauthorized practice of law, which is a punishable offense.
Tennessee brokers may prepare listing and sales agreements and buyer representation agreements without being considered to be practicing law without a license. They may not, however, prepare deeds, installment sales contracts, mortgages or deeds of trust, or title documents.
In practice, most brokers in Tennessee use standard forms or variations on standard forms promulgated by the Tennessee Association of Realtors for sales, listing, and representation agreements.
Responsibility for keeping records
The principal broker is charged with keeping records of completed transactions for a period of three years and may be disciplined for failing to do so.
Records to be maintained include:
listing agreements
purchase agreements
leases
closing documents
other contracts
escrow records
an agency disclosure in addition to the purchase agreement
residential property disclosure or disclaimer for a residential sale
lead-based paint disclosure if a residence was built before 1978
any offers
pertinent correspondence
Escrow records must specifically show:
the depositor of the funds the date of deposit the date of withdrawal the payee of the funds Electronic Records
Pursuant to T.C.A. 62-13-312(b)(6), transaction documents and records may be maintained electronically provided that the following compliance requirements are met:
Records must be organized, identifiable, and retrievable within a 24-hour period following a Commission request for inspection;
Principal brokers must maintain a retention schedule which safeguards the security, authenticity, and accuracy of the records over the entire retention period; and,
Principal brokers must ensure that their record retention hardware ensures record accessibility and readability over the retention period.
Access to records
A licensee must allow the director of the Division of Regulatory Boards access at any reasonable time to all documents and records relevant to determining that a licensee has properly maintained and disbursed funds from escrow or trustee accounts.
Failure to permit access may lead the division to pursue legal remedies. Refusal is also grounds for the Commission to suspend or revoke a license.
The managing agent of a time-share firm must have an agreement with its depository institution and the Commission to allow the commission access at all times to inspect account records on behalf of the condominium homeowners in a project.
Similarly, the Human Rights Commission has the right to demand access at any reasonable time to examine records pertinent to investigating a complaint of discriminatory practices.
Handling of offers
A broker or affiliate broker must:
Promptly tender every written offer to purchase or sell obtained on a property until a contract is signed by all parties.
The indistinct term “promptly” is usually understood in this instance to mean “the same day as received.”
Promptly deliver true executed copies of an accepted offer to purchase or any counteroffer, signed by the seller, to both the purchaser and the seller.
In this instance, “promptly” is usually interpreted to mean 72 hours or three business days.
Make certain that all of the terms and conditions of the real estate transaction are included in the contract to purchase.
If an offer is rejected, the broker or affiliate broker must request the seller to note the rejection on the offer and return the same to the offeror or the offeror’s agent.
Required forms and distribution of copies
The Commission does not require the use of specific forms, but it does require:
an agency disclosure in addition to the purchase agreement
a residential property disclosure or disclaimer for a residential sale
a lead-based paint disclosure form if a residence was built before 1978
A licensee must furnish all signatories with a copy of any listing, sale, lease, or other contract relevant to a real estate transaction at the time of execution.
If a broker acts as closing agent he or she must provide copies of the closing documents to each customer or client.
